That AIFMD has gone “from monster to opportunity” was the tweet quoting directorships provider Henry Kelly – one official “soundbite” from last month’s ALFI Conference in Luxembourg. The main, and for many perhaps the only, opportunity afforded by AIFMD is the pan-European marketing passport, which seems conceptually identical to the UCITS IV passport – although obtaining either passport could involve complications. The most alarming story from any speaker was that some host regulators intend to try and charge for passports – i.e., charge funds that are already regulated as AIFs in another EU state, for approving distribution in the host state. Another panel member retorted that there is no legal basis in the directive for such charges.

However, national regulatory requirements may already impose implicit costs on passports. For example, in this issue Finex shares the challenges experienced in setting up a small UCITS, which include the French regulator stipulating an additional service provider, adding annual costs of both fees and management time. Little wonder, then, that State Street’s 2013 Alternative Fund Manager Survey of 391 managers found that less than 5% of them see “significant positive impact” from passporting. Before AIFMD can be deemed even a limited success, the passporting process must work smoothly and cost-effectively for small and large hedge fund managers, inside and outside the EU, alike.

Apparent apathy over passporting may be explained more simply – if some managers have no plans to use it. We infer that many ex-EU managers do not plan on either registering as AIFMs, or setting up UCITS, to obtain passports, because National Private Placement Regimes (NPPRs) and Reverse Solicitation remain key concerns for the half of AIMA members outside the EU – and over 40% of ex-EU managers canvassed for Ernst & Young’s Hedge Fund Survey fear AIFMD may impede their marketing. Granted, some of the 63 AIF applications so far to Luxembourg’s CSSF have come from ex-EU countries such as the USA, Japan and Switzerland, but many managers outside the EU are not applying, for sound reasons. Most obviously, they cannot get the AIFMD passport until 2015. Additionally the absence of an agreed definition of “Closed End Fund” means some managers of longer-dated vehicles do not yet know if they can avoid AIFMD.

Although the hedge fund industry overall has in 2013 seen the biggest net inflows in five years, new launches of hedge funds are languishing at the lowest-ever levels. The defeat of completely unworkable early AIFMD proposals can only be seen as avoiding catastrophe and can hardly be heralded as a “victory”. It is a pyrrhic victory if prohibitive compliance costs choke off start-ups. Experienced traders who cannot countenance the regulatory challenges of running their own firm could consider applying to established hedge funds, and in this issue we feel very privileged to have interviewed Moore Capital’s chief talent scout, Elaine Crocker, who is a regular fixture in our 50 Leading Women in Hedge Funds survey.